Sunday, January 1, 2012

The insurance industry has under-invested in management talent for decades. This contrasts sharply with the banking business. Until very recently, no insurance company would have shown up on a list of preferred employers at top business schools. Furthermore, compensation was generally less attractive than in other parts of the financial services industry. This is driven partially by the retail nature of the business with a strong focus on mass operations - but it has clearly become an issue for the industry at large, and Asia is no exception. The most aggressive players have already begun to change - globally and in Asia - and have identified talent as a key success factor for further growth and value creation.

In many Asian markets the situation is aggravated by the fact that the insurance industry is still very young and, therefore, lacking a whole generation of managers with more than 5-10 years of experience, notably in India and China. But even here the winners are already pulling away from the pack. Ping An of China now has 74 expats within their top 100 executives - mostly, but not all, with a Chinese background. And ICIC - Prudential is attracting top talent in India, capitalizing on the strong brand and image of the group and a sense of national pride. Management Roles In BusinessThe key to developing and attracting top talent to life insurance companies is taking a holistic approach. Compensation, although important, is certainly not the only element, and in the eyes of young managers also not the most crucial. For example, graduates from top business schools regularly cite attractive career opportunities and corporate culture as more important than compensation. According to a Hill & Knowlton study, which surveyed 527 MBA students at 12 top-ranked international business schools, 95 percent of the students ranked career opportunities as "extremely" or "very important" factors in selecting an employer, while 86 percent of them ranked corporate culture as equally important.

Life insurers should look at best practices from other industries to upgrade their human resources and talent management functions. Companies such as GE demonstrate that hiring the best, giving them great responsibility early on, and actively managing their professional development through systematic training, career paths, and mentoring is key to building a strong management bench. This is particularly important in Asia where management talent is scarce, and a culture of poaching people from competitors often starts a downward spiral of overpayment and frequent job hopping. Building a strong management bench will be a key success factor in life insurance in Asia for the next decade.We believe that this challenge - the need to upgrade and professionalize all key functions of the business system - gives the multinationals a substantial competitive advantage. In general, MNCs have put a higher emphasis on quality than many of the purely growth-focused local players. This has sometimes limited their growth ambitions in the last decade, but increasingly, should become a strength going forward. Furthermore, they have the option to adapt best practices they have learned from their mature home markets, as well as their operations in Asia, to the Asian marketplace.

Over the next several years, we may even see some of these multinational insurers deriving more value from their Asian operations than from their home markets. From nascent markets, such as India and China, to the maturing markets of South Korea and Taiwan, to the "post-mature" Japan market, we can expect to see some MNCs significantly raising their game to gain market share from the local incumbents.Capturing the Pan.Asian OpportunityAlmost all multinationals are already playing a multi-country game in Asia - but most of them are still operating in just a handful of these countries, leaving significant opportunities on the table to broaden their footprint. Meanwhile, most of the Asian incumbents are still confined to their home markets, with no, or just a few, businesses outside their country of origin. We believe this will begin to change: we will see some of the more adventurous Asian players branch out of their home country to capture opportunities in new markets. While some of them will see neighboring Asian markets as the next stepping stone, some of the players will aim even further and enter the Western markets. Management Roles In Business

Given the difficulties of going global, it is unlikely that all of these moves will be successful. However, it is also important to note that many of these Asian insurers have significantly upgraded their management capabilities in the past decade, and riding on the strength of their successful domestic business, there will surely be a few winners who will be able to force their way into the global elite. In fact, a few Asian players have already risen to the top of the global elite by value, including China Life, Nippon Life, Meiji Yasuda, Ping An, and Millea. We see three main ingredients in a successful recipe to capture the pan-Asian opportunity.Market Prioritization

As described in earlier posts, Asian markets have very different characteristics and, therefore, very different risk-return profiles from an investment perspective. From "high-risk, high-return markets" such as China and India (markets with enormous long-term growth potential but high regulatory constraints and tough competition), to Japan with its enormous size but little growth, to some of the Southeast Asian markets which offer free entry to foreign insurers but are relatively small in size, the landscape could not be more diverse. Hence, an entry into these markets has very different capital requirements, break-even scenarios, and skills needed to become successful.

For MNCs and Asian life insurers who want to expand in the region, it is very important to understand these trade-offs and requirements before making an investment. For example, we have too often seen Western companies entering China with huge growth expectations, only to be disappointed by the required time horizon and the slow pace of development in the short term. Similarly, we have seen several MNCs entering india through joint ventures, only to witness themselves becoming a very passive partner with little value added to the local venture. Also, previous attempts by many Asian players to expand in the region (mostly from Japan and South Korea), have been met with disappointment. Therefore, fully understanding the realities on the ground, identifying the right entry options and expansion plans on a market-by-market basis, and utilizing the experience and skills learned from other markets in the local context are vital to building a successful pan-Asian footprint. To find out more, you can check out Management Roles In Business.